Quadriga: What is Going On and Why Investors Could Lose $190 Million
Quadriga, Canada's largest crypto exchange, is going through hard times. No, it was not attacked by hackers. The founder and head of the exchange suddenly died and took access to $190 million of clients’ money with him.
In early January, Quadriga users began to complain they cannot withdraw fiat money and cryptocurrency from the exchange. By the middle of the month, the crypto exchange made a statement on Facebook, that said the founder and CEO Gerald Cotton died due to complications of Crohn's disease. Cotton was a 30-year-old man, and he was diagnosed with the disease 6 years before the death.
The problem is Cotton independently managed the exchange from his personal laptop. In fact, he was the only permanent employee of Quadriga, and of course, Cotton kept all clients' cryptocurrency on cold wallets to protect user money from hacker attacks. Before his death, he did not give anyone access to wallets. As a result, the cryptocurrency of 115,000 clients worth $137 million, end up trapped on the wallets. In addition, the exchange owes customers $53 million in fiat currency, that it cannot payback either.
According to Cotton's widow Jennifer Robertson, access to her husband's laptop is encrypted. “I don’t know the password or recovery key,” says the widow.
Robertson tried to find the password, but she didn’t succeed. Quadriga had to hire specialists who could hack into Cotton's computer and return the money to customers, but the company claims that it will be not possible to return all coins.
At this time, Quadriga began the bankruptcy process and submitted the necessary documents to the court. The court appointed Ernst & Young as an independent observer who should monitor how the company is trying to overcome its financial problems.
According to Canadian media CBC, an independent observer will also monitor the Cotton’s laptop. In addition, the court thinks this case isn’t a typical bankruptcy. After all the exchange has customers’ money. They are only stored in cold wallets that are not yet accessible.
The exchange has other problems as well. Last year, Canadian bank CIBC froze Quadriga accounts, where the exchange kept $22 million. The bank doubted the origin of this money. The exchange went to court and forced the CIBC to defrost the accounts. Although the bank did it, Quadriga still cannot get the money back, because Canadian financial institutions refuse to cooperate with the crypto exchange.
According to Robertson, these $22 millions - almost the only way to somehow pay off with customers. Another possible way is to sell the exchange.